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Guide to FBAR Penalties

Posted on 3rd Sep 2016

Report of Foreign Bank and Financial Accounts (FBAR) penalties can be severe. When people find out that the penalties could be up to 50% of their account balance, or $100,000, they rightfully become very frightened and upset. FBAR penalties can be complicated, but this guide will help you understand.

Willful vs. Non-Willful Penalties

The penalty for non-willful failure to file an FBAR can be hefty; up to $10,000. That pales in comparison to the fines for willful penalties, however. The penalties for willful violations can be up to 50% of your account value on the date the FBAR was due, so if the balance of your foreign account on June 30th was $1,000,000, then you could be penalized $500,000. It is rare that the penalty is that high, but it will be hefty. The higher the account balance, the higher the penalty.

How is Willfullness Proven?

A willfulness determination by the IRS will be based on a number of circumstantial factors. These are fact-intensive case by case determinations. Factors that can indicate willfulness include being the person that opened the foreign bank account; having a history of tax noncompliance; having violations even after being notified of the FBAR filing requirements; or the account having no legitimate connection to your business or family.

Conversely, if you recently inherited the foreign bank account, have a history of tax compliance, or came into compliance after being notified of the FBAR reporting requirements, those factors all indicate non-willful behavior. That is also true if you have a family connection to the foreign account or a legitimate business reason for it.

Record Keeping Penalties

Not only can you be penalized for failing to file or incorrectly filing an FBAR, but you can also be penalized if you do not preserve the records for six years after the filing due date. If you are audited and the IRS requests copies, you must be able to produce them. Failure to maintain the records carries the same penalties as failure to file.

Criminal Charges?

You can face criminal charges for failing to file an FBAR, but it is unlikely. Juries are unlikely to convict someone criminally for failing to fill out a form. That said, if you have other tax evasion issues that are being pursued criminally, an FBAR violation could be tacked on to those charges.

Penalty Mitigation

There are IRS guidelines to help examiners determine proper penalties and mitigating factors. To qualify for FBAR penalty mitigation, you must (1) cooperate with the IRS; (2) have no illegal source income; (3) have no previous FBAR penalties; and (4) have no previous fraud penalties for underpayment of taxes. If all factors are present, then the penalty can be decreased.

If you own real estate and manage your investments through a foreign account, this real estate law applies to you. To learn more about FBAR penalties and how they affect you, contact a New York real estate lawyer today.